What’s the Cloud’s Role in Tier-2 ERP?

By Pat Garrehy, Rootstock Software.

Since the late nineties, SAP and Oracle have dominated On-Premise ERP in the large, Tier-1 manufacturing enterprises – but primarily as the ERP system at the corporate level. They have not been that successful in being implemented in the next tier, the Tier-2 small and medium sized plants. Therefore, most of what is written about Tier-2 ERP understandably discusses different types of solutions being considered for the large enterprises’ next tiers’ plants and divisions – and how they will integrate with these larger, Tier-1, corporate systems. As late as 2009, Gartner reported only On-Premise ERP software vendors in their Tier-2 ERP magic quadrant.

The adoption of Cloud ERP is gaining momentum and that quadrant will change significantly over the next five years. If one still believes in the “old school thinking” that one ERP software vendor will be installed in every plant, one is aligned with SAP’s view of this market:

SAP at the corporate facility with SAP Business by Design or SAP Business One in the Tier 2 plants.

If one believes that Cloud ERP software will dominate, they agree with NetSuite, a Cloud ERP vendor, which has trumpeted much about Tier-2 ERP. They have a different view:

SAP or Oracle at the corporate level with Cloud ERP in the Tier-2 plants.

Indeed, NetSuite is not shy to promote the virtues of such 2-Tiered ERP because they recognize that SAP’s view is no longer the commonly held view and they believe their ERP can support some of  those Tier-2 distribution and very light assembly plants.

What Is Really Happening
Of surprise to some, but not to the majority that really understand what is occurring in the ERP and manufacturing world, is that the customers do not want these next tiers to emulate that which they already have at the corporate level. Instead, they hope that the next generation solutions on the Cloud are different. Indeed, Tier-2 and even Tier-3 Cloud ERP vendors are making inroads in large corporations because those vendors whose names appeared in the 2009 Gartner Magic Quadrant don’t have a multi-tenant Cloud ERP offering. Because of this, the market can expect an entirely new set of software packages to emerge over the next five years.

Packages will be created to fill the demand for customers wanting to implement ERP projects at divisional plants in smaller doses and for varying niches. These packages will, as Rootstock and Kenandy have already done, adopt a Cloud ERP best-of-breed approach. Customers will prefer them in their overall best-of-breed ecosystems because of their lower costs and smaller risks associated with Cloud ERP implementations.